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Unemployment rose only modestly during the Great
Recession and fell strongly since, with productivity and wages lagging
behind

Elevator pitch

Experiences during the Great Recession support the view that the UK labor
market is relatively flexible. Unemployment rose less and recovered faster
than in most other European economies. However, this success has been
accompanied by a stagnation of productivity and wages; an open question is
whether this represents a cyclical phenomenon or a structural problem. In
addition the planned exit of the UK from the EU (Brexit), which is quite
possibly the greatest current threat to the stability of the UK labor
market, is not yet visible in labor market statistics.

Key findings

Pros

The UK labor market suffered less
and recovered better from the Great Recession than most other EU
countries, with unemployment now below its pre-2008 recession
level.

While wage inequality was increasing
until about the year 2000, it has been decreasing over the last
ten years.

Both non-EU and EU immigrants had
higher unemployment rates than UK-born workers before the Great
Recession, but both groups have fared relatively better since
2008, and the gap with UK-born workers is now close to zero.

The female–male median hourly
earnings ratio has been narrowing over time, reaching 90% in
2016.

Cons

After the 2008 recession, labor
productivity still has not recovered to its pre-recession growth
rate.

The UK’s exit from the EU is likely
to have large effects on its labor market but these effects are
not yet visible in the statistics.

Author's main message

The UK labor market weathered the Great Recession well, at least compared to
other European countries. Unemployment rose by about three percentage
points, started declining relatively soon after, and is now back at the
pre-recession level of around 5%. The flipside of this success story is a
stagnation of labor productivity and earnings. While output per hour worked
was steadily growing at about 2% annually before 2008, the crisis led to a
seemingly permanent slowdown in productivity growth. This, together with the
consequences of Brexit, poses major challenges for the UK government.